Indian dining apps move beyond listings as appetite for food technology grows

May 11, 2015

Online food companies in India whet people’s appetites. Now they want to satisfy their appetites.

Zomato, an early entrant to the online food market in India, built its name on restaurant listings and customer review posts, relying on advertising fees from restaurants. Seven years after its debut, it is looking at online ordering as a way to increase its revenue and turn a profit. Until the past few months, online restaurant listing services in India would provide the menus of restaurants that people could peruse so they could pick a place to dine in or to order takeout. To get food to go, people would call a phone number to order takeout or delivery, but companies like Zomato and newer players such as foodpanda and TinyOwl think that Indians are ready to use centralised services that they own and operate.

Indian dining apps move beyond listings as appetite for food technology grows

“We believe the convergence of ‘search’ and ‘transaction’ is inevitable,” analysts at investment banking and brokerage firm UBS said in a research note published in April. UBS estimates the Indian “etail” market to grow tenfold by 2020 to $50 billion as people grow more comfortable with buying things online, aided by discounts and customer reviews that keep them shopping.

The online food business is far smaller than online electronics and clothing sales. General merchandise companies like Flipkart and Snapdeal have received almost 60 percent of the investment money that has flowed in since 2007, according to a research note published by Morgan Stanley in February. Dining app companies in India say private equity interest is picking up.

“Why food, now? I think the answer is, at every point with every new wave, consumers are opening themselves up for the next level. The mental block of transacting online is going away,” said Saurabh Kochhar, foodpanda’s India CEO and its chief business officer of global operations.

foodpanda, bankrolled by Berlin-based Rocket Internet, which acts as an incubator for technology start-ups providing funds and operational expertise, launched its own delivery service in April in India, its largest market. The company, which was founded in 2012, has raised more than $310 million in funds, and operates in 40 countries.

Online ordering isn’t the only service that these companies are developing. To put themselves in the middle of the restaurant-customer relationship, they plan to offer reservation bookings and in some instances, they’ve even tied up with online-cab companies like Uber to offer rides to customers to and fro the restaurant.

“I’m seeing more and more people wanting to own that entire logistics (rather) than actually outsource it,” said Rachna Nath, partner and retail and consumer leader at auditing and consultancy firm PwC.

Providing these services for restaurants allows online food companies to charge a fee each time someone uses their services. That fee, which is paid for by restaurants should help these companies grow their revenue. Neither Zomato nor foodpanda would share financial projections, costs or estimates of how much taking over more of the food “supply chain” would help them. Deepinder Goyal, Zomato’s founder and chief executive said the company’s goal was to triple its revenue this year.

Restaurants, ideally, would want to work with such companies because they could pay a fixed fee for a guaranteed level of service instead of spending money on running delivery services — including the hiring and coordinating of that kind of work — themselves.

One of the biggest advantages, Kochhar said, is developing quality standards for delivery.

“I think the last mile of our customer experience is the delivery boy who goes to the customer and delivers the food. Now we used to find problems sometimes like the food is not hot, sometimes the experience the customer is getting with these guys is not professional,” he said. “A lot of these restaurants that we deal with, except, let’s say, a Dominos, do not have the best of guys delivering food.”

Zomato started its online ordering service in April, but has no plans to offer delivery services. Instead, it is offering the ability to order food through its site. The company, which counts Silicon Valley’s Sequoia Capital and Indian e-commerce company Info Edge among its investors, has raised more than $163 million so far. It renamed itself from “Foodiebay” to make it easier for it to diversify and to avoid any confusion with e-commerce firm eBay.

Zomato recently bought cloud data company MaplePOS, renamed Zomato Base, which it will offer to restaurants soon, to better manage their business by streamlining and organizing their menus, inventory and transactions. Zomato also bought U.S.based online reservations company NextTable in the same month. Tanmay Saksena, head of online ordering at Zomato said the company was not taking over the “supply chain” but rather streamlining communication between restaurants and diners.

PwC’s Nath said online food companies have been beneficial to the restaurant business as they help bring in more business and take the headache of deliveries without restaurants having to invest in expensive real estate to expand.

But not everyone is quick to outsource aspects of the business to online portals.

“I’m a big believer of fresh from the kitchen straight to your table,” Manu Chandra, executive chef and partner at pan-Asian restaurant the Fatty Bao and pub Monkey Bar, in Bangalore’s Indiranagar neighbourhood. “The adventure and, let’s say, the play on textures and flavours, which we’re able to achieve at the restaurant can almost never be replicated on a takeaway.”

(Editing by Robert MacMillan; Follow Karen on Twitter @karen_rebelo and Robert @bobbymacReports | This article is website-exclusive and cannot be reproduced without permission)

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